(Reuters) – The Reserve Bank of India’s monetary policy committee kept interest rates at record highs on Friday, as widely expected, but traders await its comments on inflation and liquidity normalization for further clues to the outlook.
The RBI policy rate or reverse repo rate remained stable at 4% while the reverse repo rate or borrowing rate also remained unchanged at 3.35%.
The 60 economists polled by Reuters said they did not expect any change in repo or reverse rates, which have remained stable since May of last year.
“We are reassured that the trajectory of inflation is turning out to be more favorable than expected,” Governor Shaktikanta Das said in a speech after the policy decision.
MADHAVI ARORA, CHIEF ECONOMIST, EMKAY GLOBAL FINANCIAL SERVICES, MUMBAI
“The MPC should unanimously keep key rates unchanged and reiterate its accommodative stance on both rates and liquidity. However, MPC member Jayanth Varma’s dissent over maintaining an accommodating stance for the foreseeable future continues to keep the MPC divided.
“The RBI’s position on liquidity management was the most watched. As expected, the RBI did not shock the system with a rise in reverse repurchase agreements, and policy is being used well as leverage to prepare markets for a gradual approach to normalization through communication and action.
“We don’t see the RBI deploying direct tightening tools. Instead, we expect the RBI to leave natural stabilizers like increased credit drawdowns and strong currency circulation etc. to reduce excess liquidity. “
MOHIT RALHAN, PARTNER DIRECTOR AND CHIEF INVESTMENT MANAGER, TIW PE, NEW DELHI.
“The RBI has taken an extremely balanced approach, as the Indian economy continues to resist but aggregate demand has still not reached pre-pandemic levels.”
“While inflation will remain a major concern, especially given rising energy prices around the world, the focus will likely be on sustaining growth until the end of the year. Inflation remains below the RBI forecast of 5.3% for fiscal year 22 ”.
“The bullish phase of Indian markets continues and the focus will now be on global signals, in particular the change in monetary policy of central banks of other major economies and the unwinding of their expanding balance sheets.”
SHASHANK MENDIRATTA, ECONOMIST, IBM, NEW DELHI
“Today’s policy, although on the expected lines on rates and position, was more balanced, despite multiple global uncertainties in the form of an expected Fed cut, China slowdown and an energy crisis. “
“The domestic macroeconomic environment favorable to inflation and growth has allowed the central bank to remain accommodating in our view.”
“The RBI has downgraded its inflation forecast for FY22 by 40 basis points to 5.2% due to lower than expected inflation impressions. Inflation developments are expected to remain subdued. on an annual basis in the coming months.
“Although growth has improved, the recovery is still uneven with production below the pre-pandemic level. Overall, we expect the RBI to keep its policy rate unchanged but continue to manage excess liquidity. “
PRITHVIRAJ SRINIVAS, CHIEF ECONOMIST, AXIS CAPITAL, MUMBAI
“The central bank seems comfortable with the path of inflation at this point and is focused on supporting growth. In our opinion, the real action in politics today was a statement that noted that further G-SAP operations were not needed at this time. “
“The RBI Governor notes that production is still below the pre-pandemic level and that the recovery needs political support. As pointed out, the governor lobbied to reduce indirect taxes on fuel in order to contain inflationary pressures. “
“The RBI has reiterated its commitment to the inflation target by stressing that it is vigilant and wishes to guide inflation towards the median target (of 4%) in a gradual and calibrated manner.”
VIVEK KUMAR, ECONOMIST, QUANTECO RESEARCH, MUMBAI
“The main takeaway has been the calibration of excess liquidity which currently stands near a record high of 13 trillion rupees ($ 173.41 billion).”
“The broadening of the scope of variable reverse repo rate auctions and the end of G-SAP operations would gradually increase short-term money market rates, towards the middle of the policy rate corridor. “
“This, we believe, will lay the groundwork for a normalization of interest rates. As a result, we are maintaining our 40 basis point (bps) call for upward repo rate adjustment between December 2021 and February 2022, followed by a 25 basis point increase in the reverse repo rate. in the first quarter of FY22. “
RADHIKA RAO, ECONOMIST, DBS BANK, SINGAPORE
“The guidance has decoupled the accommodative stance of policy from liquidity absorption, which means policymakers remain cautious about growth prospects while inflation risks are under scrutiny.”
Add to this, the central bank stressed that ‘one size does not fit all’ when it comes to the path of rates, suggesting that domestic considerations will trump global catalysts in deciding whether and when to tighten policy. . “
“Along with our expectations, the inflation forecast was lowered and GDP growth was held back. Stopping bond purchases is probably a precursor to increasing the repo rate gradually. “
RUPA REGE NITSURE, CHIEF GROUP ECONOMIST, L&T FINANCIAL HOLDINGS, MUMBAI
“A unanimous decision by MPC members to keep key rates and the accommodative stance unchanged should calm the nerves of market participants and control the volatility of bond yields across maturities.”
“A strong statement from the governor explaining the rationale for today’s decision and clear forward guidance will hopefully keep market conditions more orderly through the remainder of FY22.”
GARIMA KAPOOR, ECONOMIST – INSTITUTIONAL ACTIONS, ELARA CAPITAL, MUMBAI
Encouraged by the improved prospects for national growth, the palpable progress of immunization and the re-emergence of risks, the RBI presented its roadmap to emerge from extraordinarily easy liquidity conditions even as the MPC kept rates stable. “
“The systemic deluge of liquidity in the banking sector increased the risks of asset price inflation and poor risk assessment, making it imperative to normalize liquidity policy.”
“With today’s measures, we consider that the RBI is waltzing in a calibrated exit from its accommodative policy, starting with a reduction in liquidity. We expect the reverse repo rate to increase in February 2022. By then, there would be enough clarity on the possible impact, if at all, of COVID-19 Wave 3, of Fed policy and the impact of rising global commodity prices due to supply. side shocks.
SUVODEEP RAKSHIT, SENIOR ECONOMIST, KOTAK INSTITUTIONAL EQUITIES, MUMBAI
“RBI policy, as expected, has remained cautious and on a wait-and-see basis. Even though he has increased the quantum in the 14-day VRRR auction and opened the 28-day VRRR auction option, he has sufficiently probed his accommodation and the need to ensure that liquidity conditions remain comfortable. “
“We don’t see the RBI in a rush to normalize liquidity conditions as well as the short-term repo rate. We continue to view the February policy as the first review period for the RBI to narrow the policy rate corridor by increasing the repo rate. “
Reporting by Rama Venkat, Chandini Monnappa, Chris Thomas, Shivani Singh, Nallur Sethuraman and Anuron Kumar Mitra in Bengaluru; edited by Uttaresh.V